More users and lesser discounts? A look at what 2016 holds for Indian e-commerce firms

More users on board and era of discounts nearing end… Shelley Singh looks at the year ahead for the booming ecommerce sector.Shelley Singh | ET Bureau | January 14, 2016, 10:20 IST

E-commerce had a standout year in 2015, when it grew in size - from $5 billion to $8 billion - and pervaded every aspect of our lives. In 2016, it will grow further and sink deeper into our lives, albeit in a different form.

E-commerce is set to become more ‘m’, or mobile, than ‘e’ commerce. That means more users. No doubt, more users will help companies build scale, but they will embrace a few changes themselves. Companies will go after profitable growth rather than woo customers with deep discounts (in other words, running on losses).

Cash on Delivery (CoD), a preferred mode of payment for many customers, will decline as more and more people familiarise themselves with using payment wallets to shop and pay bills.

User Boom & Online-Offline Fusion

"There were 50 million transacting users in 2015. This year, it will be at least 75 million," says Rajan Anandan, managing director, Google South East Asia and India. He sees more users coming via smartphones. In China, for example, users browse on the desktop, but they transact via smartphones - due to quicker linkages to payment gateways.

Companies will have their hands full as more users come on board, but they will be up to the task of serving the needs of customers. That will lead to the emergence of new categories of services - like delivering even milk and water - which Vijay Shekhar Sharma, founder, Paytm believes, "will replace the neighbourhood store". "You won’t need to step out to shop."

That won’t mean brick-and-mortar will disappear, but "there’ll be more fusion between online and offline services", he adds. Here is a tantalising possibility of how this and then walk down to the store to pick up the product selected. "Self-logistics will be an option," says Sharma.

Sandeep Aggarwal, founder, Shopclues, says the ecosystem is healthier and is maturing. "There will be higher adoption of m-commerce and mobile wallets." A bigger user base will just be the cue for companies to reduce discounts and focus on profitable growth. "Building scale won’t be a challenge for the large players," says Aggarwal.

Six of the large e-commerce players - Flipkart, Amazon India, Paytm, Snapdeal, eBay.in and Shopclues together have about 85-90% of the e-commerce business in India.

Darwinian Competition

For companies, it will be a year of unit economics and strong focus on (profitable) customer acquisition, revenue and margin, says Anandan. "Only the fittest will survive." Anandan believes that unlike 2015, which saw multiple players in each category - in food, there were 20 plus startups for instance - 2016 will see the going getting tough for smaller players. "I don’t see any major funding squeeze but it won’t be easy to get money," Anandan adds.

E-commerce will make inroads into rural areas. Traditional business houses such as Reliance Industries and Tata Group will enter the business more aggressively. One key challenge will be logistics as there is no large-scale player that covers the whole country, cost effectively. Despite that, 2016 promises to be significant for e-commerce.